CITIC Offshore Helicopter Co., Ltd.'s (SZSE:000099) 32% Price Boost Is Out Of Tune With Earnings

The CITIC Offshore Helicopter Co., Ltd. (SZSE:000099) share price has done very well over the last month, posting an excellent gain of 32%. Looking back a bit further, it's encouraging to see the stock is up 35% in the last year.

Following the firm bounce in price, CITIC Offshore Helicopter may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 37.1x, since almost half of all companies in China have P/E ratios under 29x and even P/E's lower than 18x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

CITIC Offshore Helicopter certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for CITIC Offshore Helicopter

Keen to find out how analysts think CITIC Offshore Helicopter's future stacks up against the industry? In that case, our free report is a great place to start.

How Is CITIC Offshore Helicopter's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as CITIC Offshore Helicopter's is when the company's growth is on track to outshine the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 8.2% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 11% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 14% during the coming year according to the sole analyst following the company. Meanwhile, the rest of the market is forecast to expand by 41%, which is noticeably more attractive.

In light of this, it's alarming that CITIC Offshore Helicopter's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Final Word

CITIC Offshore Helicopter's P/E is getting right up there since its shares have risen strongly. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of CITIC Offshore Helicopter's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for CITIC Offshore Helicopter with six simple checks.

If you're unsure about the strength of CITIC Offshore Helicopter's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.